by Nick Malouff
I wouldn’t blame consumers if they said the housing market is more confusing today than ever. There are so many new company’s out there today claiming that they have a better way and that you will end up with more money if you use their service. The truth about some of those claims is starting to reach the light of day and it doesn’t always look so good for the consumer.
One of the latest examples is the action the Federal Trade Commission took earlier this month against online home buying firm Opendoor Labs, Inc., for cheating potential home sellers by tricking them into thinking that they could make more money selling their home to Opendoor than on the open market using the traditional sales process.
The FTC alleged that Opendoor pitched potential sellers using misleading and deceptive information, and most people who sold to Opendoor made thousands of dollars less than they would have made selling their homes using the traditional process. Under a proposed administrative order, Opendoor will have to pay $62 million and stop its deceptive tactics.
According to the FTC, “Opendoor promised to revolutionize the real estate market but built its business using old-fashioned deception about how much consumers could earn from selling their homes on the platform,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “There is nothing innovative about cheating consumers.”
Opendoor, headquartered in Tempe, Arizona, operates an online real estate business that, among other things, buys homes directly from consumers as an alternative to consumers selling their homes on the open market. Advertised as an “iBuyer,” Opendoor claimed to use cutting-edge technology to save consumers money by providing “market-value” offers and reducing transaction costs compared with the traditional home sales process.
Opendoor’s marketing materials included charts comparing their consumers’ net proceeds from selling to Opendoor versus on the market. Those charts almost always showed that consumers would make thousands of dollars more by selling to Opendoor. In fact, the complaint states, the vast majority of consumers who sold to Opendoor actually lost thousands of dollars compared with selling on the traditional market, because the company’s offers have been below market value on average and its costs have been higher than what consumers typically pay when using a traditional realtor.
The FTC expanded its findings by including the following:
- Opendoor used projected market value prices when making offers to buy homes, when in fact those prices included downward adjustments to the market values;
- Opendoor made money from disclosed fees, when in reality it made money by buying low and selling high;
- consumers likely would have paid the same amount in repair costs whether they sold their home through Opendoor or in traditional sales; and
- consumers likely would have paid less in costs by selling to Opendoor than they would pay in traditional sales.
Opendoor has agreed to the following in response to the FTC’s findings:
- Pay $62 Million which is expected to be used for consumer redress.
- Stop deceiving potential home sellers: The order prohibits Opendoor from making the deceptive, false, and unsubstantiated claims it made to consumers.
- Stop making baseless claims: The order requires Opendoor to have competent and reliable evidence to support any representations made about the costs, savings, or financial benefits associated with using its service, and any claims about the costs associated with traditional home sales.
Certainly, not all company’s offering a better deal are using similar tactics to deceive consumers, but it is becoming harder to determine who is offering real value and who is deceiving.
The traditional process of selling a home may not always be perfect but the consumer has the advantage of allowing the market to determine the best possible price. Also, having an agent representative on your side can potentially tip the scales to the advantage of the seller or buyer. Although it may take a little longer and sometimes not as convenient, the traditional home selling process is time tested and proving once again that a deal that sounds too good to be true…probably is.
Nick Malouff is the CEO and co-owner of Better Homes and Gardens Real Estate BloomTree Realty with offices in Prescott, Prescott Valley, Cottonwood and Sedona. To reach Nick or a highly qualified agent, please call 928-925-2023